MISTAKE #57: Your product’s retail price is too low

Few companies have a business model built around trying to sell their product at the lowest possible price.  Most of these are probably in the generic or private label business.

As a result of this, it is less common for most companies to find themselves in a position where they’ve priced their product too low. 

But it does happen.

 While retailers like Walmart have built their equity on EDLP (Everyday Low Price), and most other retailers use temporary price discounting to attract traffic, low prices can have their drawbacks.

Consider if you’re at risk of getting caught in any of the following situations:

You under-estimate the margin the retailer expects (or needs):  Retailers want to add distribution of items that are above their category average margin (this is considered margin accretive).  They need a strong case for adding products that lower their category margin.  This is particularly important if the retailer’s corporate strategy is specifically to increase profit.  Make sure you’re aware of category margins and do your best to have your products improve them.

Your product could pull too many dollars out of the category: Lower-priced items can tempt current shoppers to trade down from the more expensive items they are currently buying.  Your product needs to attract more than enough dollars to offset any of this trade down.

Your price calls your product’s quality into question:  This reflects the dual meaning of the word cheap.  There is a point when a product gets so inexpensive that shoppers assume something was compromised or is missing to get to the lower price.  Make sure your product has enough value cues to answer any concerns potential buyers may have about how good it really is.

Your price puts you in the competitive set with ultra-low-cost producers of private label:  Products with a low-cost structure need to decide if they want to strip out all costs and jump into the private label arena or start to build their own brand.  Don’t find yourself in a position where you don’t have the funds to build your brand, but also can’t win a pure low-cost game.

PRICE IT RIGHT

Being willing to sell your product at the lowest possible price is very admirable.  In at least one way, it will likely make you more competitive and more appealing than other companies that are attempting to sell similar products at much higher prices.

However, lower pricing always comes with trade-offs, like giving you very limited resources and fewer tools to work with.  Which makes it even more important that you're exceptionally skilled at applying those resources and tools.

Just make sure you’re committed to your low price and that it fits with and supports your broader growth strategy.  It is almost impossible to shift your position to a higher price.